3 Value Stocks for Conservative Investors

Investing in the stock market is the best way to predictably generate wealth over the long term. But many investors understandably want to minimize the risks involved with the process. One effective way to do so is by focusing on "value stocks" -- that is, stocks that trade for significantly less than their intrinsic value.

To that end, we asked three top Motley Fool investors to each pick a value stock that they believe conservative investors can appreciate. Read on to learn why they chose Nike (NYSE: NKE), Cisco (NASDAQ: CSCO), and Brookfield Infrastructure Partners (NYSE: BIP).

Nike is down (but not out)

Steve Symington (Nike): Nike stock has been hit hard in recent months -- down more than 15% from its 52-week high in early August -- on a slowdown in its North American growth amid what footwear retailers have described as a "very promotional" environment. But with shares now trading at roughly 21.8 times this year's expected earnings (well below its five-year average of roughly 26), and given Nike's ambitious capital returns and enviable global growth potential, I think it's an attractive option for conservative investors.

For one, keep in mind Nike's most recent quarterly results (announced late last month) were effectively in line with its guidance provided in June. Nike brand revenue climbed 2% at constant currency, as a 3% decline in North American sales (to $3.924 billion) effectively offset healthier 5% growth in the EMEA region, 12% growth in Greater China, and 6% growth in the Asia-Pacific and Latin American markets.

But North American weakness won't last forever. And more than anything, Nike views it as an opportunity to gain market share. "We have operated in dynamic circumstances before, and in every instance, being on the offense and consumer-focused has served us well," added Nike CFO Andy Campion during last quarter's call. "[...] We are all energized by the opportunity to ignite yet another horizon of strong sustainable growth at Nike."

In the meantime, investors who buy today can enjoy a healthy annual dividend yield of 1.4%. And Nike still has $6.7 billion remaining under a four-year, $12 billion share repurchase authorization that it put into place in late 2015. As such, I think long-term investors willing to take advantage of the pullback stand to win big in the coming years.

A dull but dependable tech play

Leo Sun (Cisco): Cisco is the world's largest maker of network routers and switches, which generated nearly half its revenue last year. Sales of those products has been sluggish, but the company is aggressively bundling them with its higher-growth security, collaboration, and wireless products.

Like many "mature" tech companies, Cisco hopes that the growth of those smaller businesses will eventually offset the weakness of its older ones. But that process is a slow one -- Cisco's revenue slipped 3% last year (2% excluding the divestment of its set-top box business) due to weak sales of routers and switches, and its adjusted earnings rose just 1% -- even after it spent $3.7 billion on buybacks. Analysts expect its revenue to stay flat this year, and its earnings to rise less than 2%.

This doesn't seem to make Cisco a compelling investment, unless we consider three things. First, it finished last quarter with $70.5 billion in cash and equivalents, but just $3 billion remained in the U.S. If the Trump administration lowers the corporate tax rate on repatriated cash, Cisco could bring that cash home and spend it on domestic acquisitions, buybacks, and dividends -- which could unlock huge growth opportunities for the company.

Second, Cisco trades at just 18 times earnings, versus the industry average of 33 for communication equipment makers. It pays a forward yield of 3.5%, which is easily supported by a payout ratio of 58%. That winning combination of a stable business, potential repatriation benefits, a low valuation, and a high dividend all make Cisco an ideal play for conservative investors.

Three things value investors should love

Jason Hall (Brookfield Infrastructure Partners): If you're looking for good value in an investment, three things that you should look for are:

• Strong competitive advantages.
• Generous and predictable cash flows. 
• Available to buy at a reasonable valuation. 

Brookfield Infrastructure has all three of these things. To start, the master limited partnership's entire business is based on owning and operating critically important infrastructure assets -- like telecom, water, energy distribution/utility, and transportation. These kinds of businesses have very high barriers to competitive entry, are often minimally affected by economic conditions, yet are key to driving trade and commerce in the areas they serve.

They also tend to generate very consistent cash flows, often for many years -- even decades -- of useful lifespan. Factor in the geographic diversity of Brookfield Infrastructure's asset base, and there's further security in the partnership's long-term business prospects as well as downside protection. They have also allowed the business to pay -- and regularly increase -- a quarterly distribution that yields close to 4% at recent prices. The strength of the dividend offers further protection against the risk of losses.

Lastly, Brookfield Infrastructure offers solid value today, trading for 9.8 times funds from operations, or FFO, even with a stock price that's near its all-time high. This helps make Brookfield Infrastructure an ideal value stock for conservative investors.

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Jason Hall owns shares of Brookfield Infrastructure Partners and Cisco Systems. Leo Sun owns shares of Cisco Systems. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool recommends Brookfield Infrastructure Partners and Cisco Systems. The Motley Fool has a disclosure policy.